STATEMENT BY THE CABINET SECRETARY ON THE PROCEEDS OF

THE SOVEREIGN BOND

1. As you are all aware we issued a Sovereign Bond in June 2014 for purposes
of general budget support including for funding infrastructure and for the
repayment of the Syndicated Loan amounting to US$600 million plus
accrued interest of US$4.6 million.
2. The international financial markets responded very positively reflecting
strong investor confidence in how the Kenya economy was being managed.
Based on this strong response, and the low interest rates on the sovereign
bond, we subsequently returned to the international market and tapped an
additional US$750 million. The interest rates ranged from 5.9% to around
6.9%.
3. The total proceeds from the Sovereign Bond were used as follows:

4. Therefore, all proceeds from the Sovereign Bond were accounted for and
this position was confirmed by the Auditor General who in his report for
2013/14 noted that he did not qualify my audit opinion on the basis of this
matter due to the fact that the balance of actual net proceeds from the
Sovereign Bond is correctly reflected in the Off-shore Account and in the
Central Bank of Kenya Special Account
5.
In regard to the funding of infrastructure projects, the total exchequer
releases to Ministries/Departments/Agencies amounted to Ksh. 196.92 billion
which was the available resources from the Sovereign Bond. Some of the projects
have been completed while others are on-going. The on-going projects will be
completed in due course. The exchequer releases were as follows:
a)

Exchequer releases to Ministries/Departments/Agencies (MDAs)

MDAs

KSHS.(BN)

State Department of Infrastructure

Min. Of Energy and Petroleum
State Dept. of Water and Irrigation
State Dept. of Agriculture
State Department of Livestock
State Department of Fisheries
Mini. of Sports, Culture and Arts
Min. Of Information, Communication and Tech.
State Department for Education
Min. Of Land, Housing and Urban Dev.
State Department of Planning
State Dept. of EAC, Commerce & Tourism
State Dept. of Science and Technology
Min. Of Industrialization and Enterprise Dev.

64.37
21.07
15.06
14.21
2.50
1.24
1.28
2.93
6.21
9.17
44.57
2.61
8.97
2.72

Total

196.92

5. I wish also to respond to the issue of failure to transfer the proceeds of the
Sovereign Bond contrary to Article 206(1) of the Constitution and Section
17(2) of the Public Finance Management (PFM), Act, 2012.
6. The National Treasury is aware of the provisions of Article 206 (1) of the
Constitution which provides for all money raised or received by or on behalf
of the National Government be paid into the Consolidated Fund unless
exempted.
7. In addition, Section 17(2) of the Public Finance Management Act (PFM),
2012 obligates the National Treasury to maintain the National Exchequer
Account to receive the proceeds of the Consolidated Fund.
8. The cited provisions should not be read in isolation but with other relevant
provisions, especially Section 50(7)(d) of the Public Finance Management
Act 2012 and Section 45(d) of the Central Bank of Kenya Act. Section
50(7)(d) of the PFM Act states as follows:
the Cabinet Secretary shall ensure that the proceeds of any loan raised
under this Act:(d) in the case of an external government security, applied, in part, to
pay at closing, pre-negotiated expenses associated solely and
exhaustively with the borrowing, including but not limited to, the
fees, commissions and expenses of lenders, financial arrangers,
managers and book runners, fiscal gents, trustees, paying agents,
exchange and information agents, syndicate agents, counsel,
clearing systems, listing gents, and stock exchanges, rating
agencies, and other expenses of a similar nature arising from the
external loan or external government security.
9.

Further to this, Section 45(d) of the CBK Act states as follows:

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The Bank in its capacity as fiscal agent and banker to any Public
entity may, subject to the instructions of that Public entity:- (d) pay,
remit, collect or accept for deposit or custody funds in Kenya or
abroad.
10. It is with this legal framework in mind that the National Treasury requested
the CBK to pay an amount of Kshs.53.2 billion to settle the Syndicate Loan.
11. As provided for in Section 50(7)(d), one of the pre-negotiated expenses of
raising the Sovereign Bond, was for the settlement of the syndicated loan.
This was specifically provided in the Sovereign Bond prospectors which
stated as follows:Kenya expects the net cash proceeds before expenses, of the issue of
the Notes to amount to US$ 1,999,800,000 which Kenya expects to
use for general budgetary purposes, including the funding of
infrastructure projects and repayment of a US$ 600 Million loan
incurred in 2011/12 that matures in August, 2014.
12. In view of this, the National Treasury instructed the Central Bank of Kenya
(CBK) as the fiscal agent of the Government to pay an amount of US$600
million for the syndicate loan plus accrued interest of US$4.6 million.
These instructions were in line with the provisions of Section 50(7)(d) of
the PFM Act and Section 45(d) of the CBK Act.
13. As you are aware, Article 201 (d) of the Constitution provides that public
money shall be used in a prudent and responsible way. In this respect, the
action of the National Treasury saved the Government from losing a
substantial amount of money in terms of converting the US dollars to Kenya
Shillings and then back to US dollars. The contract documents required that
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the syndicated loan be repaid within seven days of receipt of proceeds from
the Sovereign Bond. Therefore, by not converting the dollars to shillings and
then immediately converting the same shillings into dollars, saved the
Government exchange rate losses approximating Kshs.1.2 billion.
14. It should be further noted that the Controller of Budget was kept fully aware of
these transactions. Indeed, the Controller of Budget had approved the initial
Payment Authority when it was uncertain whether Kenya would be able to
access the International market to float the Sovereign Bond.
15. When it became clear that we would be able to access the international
market, the earlier plan to pay the Syndicated Loan from our own resources
was abandoned in favour of using the sovereign bond proceeds. Clearly the
above actions demonstrate that the National Treasury was prudent, open and
transparent on this transaction, while working within the legal provisions.